Presenilin (PS)-dependent gamma-secretase cleavage of amyloid precursor protein (APP) is the final proteolytic step in generating amyloid beta protein (Abeta), a key peptide involved in the pathogenesis of Alzheimer's disease (AD). PS undergoes endoproteolysis at the non-transmembrane (TM) hydrophobic domain by an unidentified "presenilinase" to generate the functional N-terminal and C-terminal fragment heterodimers (NTF/CTF). We have demonstrated that mutations of two aspartate residues in PS1 TM domain 6 and 7 block presenilinase cleavage of PS1 and gamma-secretase cleavage of APP. Recently, we have reported a mammalian cell-free system to generate NTF and CTF from FL PS1 in vitro and found that presenilinase activity was associated with membrane vesicles and has many characteristics of gamma-secretase. Furthermore, presenilinase and gamma-secretase are pharmacologically distinct, and some published gamma-secretase inhibitors were found more potent in inhibiting presenilinase. We hypothesize that FL PS1 functions as presenilinase to cleave the hydrophobic domain in the PS1 loop and eliminate the steric hindrance for NTF/CTF to interact with gamma-secretase substrates. This hypothesis will be tested by carrying out the following 3 Specific Aims: 1) To characterize biochemical properties of presenilinase and understand the mechanism of presenilinase in cleaving the hydrophobic domain in PS1 loop. Requirement of hydrophobic domain versus specific sequence, and length of recognition domain for presenilinase cleavage will be examined, as well as any feedback pathway from NTF/CTF will be explored; 2) To examine the subcellular site for presenilinase activity. Subcellular fractionation and cell surface biotinylation will be carried out to measure presenilinase activity in each compartment, and results will be confirmed by immunocytochemical staining; 3) To compare biochemical and cellular properties of presenilinase and gamma-secretase and determine the effect on gamma-secretase activity by presenilinase cleaving its substrate. Substrate recognition by two protease activities will be compared, and the effects of NTF/CTF levels on Abeta generation will be analyzed.